International Advisory and Monitoring Board on the Development Fund for Iraq

Press Release
June 12, 2007

Statement by the International Advisory and Monitoring Board on the Development Fund for Iraq

The International Advisory and Monitoring Board (IAMB) on the Development Fund for Iraq (DFI) met in Amman, Jordan on June 2-3, 2007 and issued the following statement:

"The IAMB met to continue its oversight role over the use of resources of the DFI, which is the principal repository for Iraq's oil export receipts, and continued to oversee audits of the DFI in line with its mandate under UN Security Council Resolution 1723. The IAMB (i); discussed the results of the 2006 DFI external audit and the audit arrangements for 2007; (ii) met with the Committee of Financial Experts (COFE) established to succeed the IAMB; and (iii) considered the progress in addressing the IAMB recommendations remitting from earlier audits.

"The IAMB welcomed the participation of COFE in the meeting, the successor body to take over oversight of Iraqi oil export revenues at the expiration of the IAMB mandate at the end of 2007. COFE, chaired by the President of the Board of Supreme Audit (BSA), was established in October 2006 by the Iraqi Council of Ministers to continue the work of the IAMB upon its dissolution. The members of COFE will work alongside the IAMB until the expiration of its mandate and will attend all future IAMB meetings.

"The IAMB was presented with the draft 2006 Ernst & Young audit reports. The audits cover (i) oil export sales to ensure that such sales are consistent with prevailing international market best practices; (ii) the accounting for the proceeds from oil export sales; (iii) the DFI financial statements; and (iv) the disbursements procedures for DFI resources to ensure that funds are used for the purposes intended. A summary of the results of the Ernst & Young audit is available on the IAMB website (www.iamb.info).

"The audits indicated that, while many efforts are being made sometimes at great personal sacrifice, the overall financial system of controls is deficient and financial management reforms need to be pursued further. The audits also noted large unreconciled differences regarding oil extraction, production and reported export sales because there is no overall comprehensive system of controls over oil revenues. A system of metering, as recommended earlier by the IAMB, would go a long way in improving overall control. The audits also note that basic administrative procedures in ministries are outdated and ineffective and the system of overall financial governance needs to be strengthened.

"The external auditor has raised ongoing concerns about the management of contracts of U.S. agencies. The IAMB has noted that these contracts have been handed over to the BSA and welcomes further progress on this issue.

"Regarding earlier recommendations, some progress has been made with the recent establishment of a committee, consisting of representatives of the Central Bank of Iraq, the Ministry of Finance, the Ministry of Oil and the State Oil Marketing Organization (SOMO), to address external audit management letters in cooperation with the BSA. The IAMB is encouraged by the initiative to follow-up on the many recommendations and by the initiative of the Council of Ministers to hold ministries accountable to strengthen internal controls. The IAMB urges the BSA to follow-up on all recommendations, monitor their implementation and report to the Council of Ministers on a six-monthly basis on progress being made. The IAMB looks forward to receiving the first report by end-2007.

"While the current situation in Iraq is challenging, it is worrisome that insufficient progress has been made in addressing the weaknesses revealed in earlier audit reports. The Iraqi representative and the President of the BSA provided an update on progress in implementing earlier recommendations. Insufficient progress has been made in addressing the IAMB's continuing concerns regarding oil metering. The IAMB urges the Government of Iraq to develop an action plan to expeditiously implement an effective oil metering system throughout the oil production, distribution and export processes. Other audit reports, including those produced by the BSA, the U.S. Government Accountability Office (GAO) and the U.S. Special Inspector General for Iraq Reconstruction (SIGIR) also point to these weaknesses and confirm the above concerns of the IAMB. It is imperative that progress be made to continue the path toward sound financial governance to mitigate the current vulnerabilities to mismanagement and diversion of funds.

"In accordance with the IAMB Terms of Reference, the nomination and appointment by the Government of Iraq of the DFI external auditor is subject to approval by the IAMB. Representatives of the Government of Iraq briefed the IAMB on the evaluation process to select an external audit firm to conduct an audit of the resources and disbursements of the DFI. The IAMB agreed that the 2007 audit of the DFI should cover the period January 1 to December 31, 2007 with an interim audit for the period from January 1, 2007 to June 30, 2007. The interim audit will take place under the oversight of the IAMB, while the final audit is expected to be undertaken under the oversight of the COFE. The IAMB approved the process and concurred with the recommendation of the Government of Iraq to proceed with the audits.

"The IAMB noted that the DFI immunity is due to expire at the end of 2007. Should the Government of Iraq request an extension of the DFI, the IAMB proposes that it could be under the general oversight of COFE.

"The IAMB welcomes the UN Secretary General's recent appointment of Mr. Warren Sach, Assistant Secretary-General and UN Controller, as his representative to the IAMB to succeed Mr. Jean-Pierre Halbwachs. The IAMB is grateful for Mr. Halbwachs's valuable contributions to the IAMB as the UN representative and particularly as the chair of the IAMB since its inception. This IAMB meeting was chaired by the Iraqi representative who also hosted the meeting.

"Looking forward, the IAMB will continue to oversee the deposit and use of the proceeds of Iraq's oil export sales. The IAMB will work alongside the COFE to oversee the interim audit, and to continue to press for the timely and comprehensive resolution of the control weaknesses already noted. The IAMB expects to consider the results of the interim 2007 audit at its next meeting. The mandate of the IAMB is expected to expire in December 2007, at which time the IAMB expects to hold its final meeting, brief the press and issue its final report on the operations of the IAMB since it was established in 2003.

"The next meeting of the IAMB is tentatively scheduled for November 1-2, 2007."